After the Capex Frenzy, the Great Capex Reversal?

Global equity markets continue their rally, driven by enthusiasm around (very excessive) AI capital expenditure announcements and Big Tech earnings. Beneath this momentum lies a troubling valuation picture that warrants strategic caution.

US markets trade at a negative equity risk premium and more alarming still, free cash flow yields have compressed to approximately 3%, levels not witnessed since the Great Financial Crisis recession and the tech bubble (see chart). This combination of stretched valuations, deteriorating cash generation dynamics, and positive real rates creates an asymmetric risk environment that demands thoughtful portfolio diversification.

Figure 1. Source: RAM AI, as of 31st October 2025

As the chart illustrates, current free cash flow yields are approaching historically extreme lows, comparable only to the 1999-2000 tech bubble period. This valuation compression, combined with negative equity risk premiums, signals significant downside asymmetry in traditional equity exposure.

In this speculative context, we believe the systematic stock selection capabilities embedded within our flagship funds, the RAM European Market Neutral Equity and RAM Emerging Markets Equities provide investors with essential diversification. Both strategies employ rigorous, systematic processes enhanced by deep learning to identify and exploit market inefficiencies, with a particular emphasis on Quality and Value characteristics that become especially powerful in stretched markets.

RAM European Market Neutral Equity: Systematic Alpha Generation in a Market-Neutral Framework

The RAM EU Market Neutral fund employs a purely systematic approach with strong enhancement through deep learning, combining robust strategy diversification with disciplined stock selection across both the long and short books. Our systematic process identifies mispriced securities and exploits market inefficiencies, maintaining a Quality and Value bias that targets high-quality businesses trading at attractive valuations in our long positions, while shorting overvalued companies with deteriorating fundamentals.

This core approach is now enhanced by our statistical arbitrage strategies at 25% of allocation—an indispensable diversifier that captures short-term mispricings and proves particularly valuable during market rotations. This deployment has been instrumental in improving our Sharpe ratio while maintaining strict market neutrality.

In the current speculative environment, our systematic stock selection process and Quality and Value biases position the portfolio as a powerful diversifier—poised to capture significant alpha when markets inevitably shift focus back to fundamentals and sustainable cash generation. The RAM (Lux) Systematic Funds –European Market Neutral Equity fund (Class-I EUR net of fee*) has delivered 8.14% year-to-date and 9.7% (class IH-USD net of fees), with a Sharpe ratio approaching 1.5, low negative beta, and minimal correlation to MSCI Europe.

Please click on the following link to access the fund factsheet and obtain a global overview of performance since inception. Past performance is not a reliable indicator of future returns.

The portfolio is actively managed with reference to a benchmark. While the product compares its performance against the Index, it does not try to replicate this benchmark and freely selects the securities that it invests in. The deviation with this benchmark can be significant.

RAM Emerging Markets Equities: Systematic Opportunity Capture in Overlooked Markets

While developed markets chase speculative narratives at extreme valuations, our RAM Emerging Markets Equities strategy employs systematic stock selection to identify high-quality emerging markets companies trading at attractive valuations—businesses with strong balance sheets, sustainable cash generation, and structural growth tailwinds that aren't dependent on valuation expansion. Our systematic approach captures inefficiencies that are particularly abundant in less efficient emerging markets, where rigorous quantitative analysis provides a significant edge.

The quality bias of the selection (with a free cash-flow yield above 9%) and its underweight to the now highly valued IT sector (largest sector underweight) make the Fund an interesting risk diversifier in current market conditions.

By Emmanuel Hauptmann
CIO & Head of Systematic

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Important Information:

RAM European Market Neutral Equity and RAM Emerging Markets Equities are Sub-Funds of RAM (Lux) Systematic Funds, a Luxembourg SICAV with registered office: 14, Boulevard Royal L-2449 Luxembourg, approved by the CSSF and constituting a UCITS (Directive 2009/65/EC).

Please note that the share classes mentioned in this document may not be registered in your country of domicile.

This marketing document is only provided for information purposes to professional clients, and it does not constitute an offer, investment advice or a solicitation to subscribe shares in any jurisdiction where such an offer or solicitation would not be authorised or it would be unlawful. In particular, the Funds are not offered for sale in the United States or its territories and possessions, nor to any US Person (citizens or residents of the United States of America).

This document is confidential and is intended only for the use of the person to whom it was delivered; it may not be reproduced or distributed.

There is no guarantee that the holdings shown will be held in the future. The investment described concerns the acquisition of shares in the Sub-Funds and not in a specific underlying asset.

Past performance is not a guide to current or future results. There is no guarantee to get back the full amount invested. The performance data do not take into account fees and expenses charged on subscription and redemption of shares nor any taxes that may be levied. As a subscription fee calculation example, if an investor invests EUR 1000 in a fund with a subscription fee of 5%, the investor will pay to his financial intermediary EUR 50.00 on the investment amount, resulting with a subscribed amount of EUR 950.00 in fund shares. In addition, potential account keeping costs (by investor’s custodian) may reduce the performance. Some shares in the Sub-Funds apply a performance fee. Leverage intensifies the risk of potential increased losses or returns.

RAM Active Investments may decide to terminate the marketing arrangement in place in any given country in accordance with Article 93a of Directive 2009/65/EC.

Changes in exchange rates may cause the NAV per share in the investor's base currency to fluctuate.

Particular attention is paid to the contents of this document but no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof.

Prior to any transaction, clients should check whether it is suited to their personal situation, and analyse the specific risks incurred, especially financial, legal and tax risks, and consult professional advisers if necessary.

Please refer to the Key Investor Information Document and prospectus with special attention to the risk warnings before investing. For further information on ESG, please refer to https://www.ram-ai.com/en/regulatory-information and the relevant Sub-Fund webpage.

The prospectus, constitutive documents and financial reports are available in English and French while PRIIPs KID are available in the relevant local languages. These documents can be obtained, free of charge, from the SICAVs’ and Management Company’s head office and www.ram-ai.com, its representative and distributor in Switzerland, RAM Active Investments S.A. and the relevant local representatives in the distribution countries.

A summary of Investors’ rights is available on: https://www.ram-ai.com/en/regulatoryinformation

Issued in Switzerland by RAM Active Investments S.A. which is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA).

The source of the above-mentioned information (except if stated otherwise) is RAM Active Investments and the date of reference is the date of this document.